Energy market explained
The energy market is a commodity market in which gas, power and other fuel sources are traded. The energy market is very complex, there is the global market and then the national market in the UK. Different factors can affect each market and how much we pay for energy.
Wholesale energy market
Wholesale gas and electricity prices are also based on many factors. Wholesale gas prices are usually based on the trading of natural gas in the EU and Europe. Supply and demand is one of the main factors that affect gas prices.
Wholesale electricity prices are mainly linked to the price of gas as around 40% of UK electricity comes from gas-fired power stations. However, electricity pricing may change soon as we start to see more generation come from renewable sources such as wind and solar.
Global market
Prices of energy are set by different national markets depending on conditions and factors in the country it is generated. This market is mainly set on supply and demand as well as economic and political issues.
Shifts in the global energy market can affect the price of energy in the UK. For example, wholesale prices were pushed up last year after Russia stopped transporting gas to Western countries.
Energy in the UK
The energy market in the UK is the selling, trading and distribution of power and gas in and around the UK. There are two parts to the energy market in the UK. The first section is the wholesale market in which suppliers buy energy from energy traders. The second part of the market is the retail market which energy consumers, businesses and households, buy energy from a supplier.
How does the UK energy market work?
The energy market in the UK can be as complex as the international markets.
The National Grid
The national grid is the system operator of the UK's electricity and gas supply. This is how energy is delivered to homes and businesses. Energy prices could be affected if there are ever any issues in the way energy is transported or if there is any damage to the grid.
Energy suppliers
Energy suppliers buy wholesale energy from generators and then sell it to consumers.
Transporting energy
Whether or not energy has to be transported into the country can also affect prices. Energy from other countries causes a lack of energy security and leads UK market prices to be heavily related to the global energy market.
Energy generation
Energy generators produce gas and electricity to sell to energy suppliers. Whether the UK produces the energy or not can massively affect prices. Importing energy costs more and affects the UK market's stability.
What is green energy?
The world trying to move away from fossil fuels as they massively affect the environment and they are becoming less available as they are a non-renewable resource. The government and energy regulators across the UK are starting to think of ways that the UK market can be changed and reformed to allow for more green energy for them to meet net-zero goals.
A lot of the UK's electricity generation comes from renewable sources now such as solar, wind, hydro and nuclear power.
Energy regulation and government intervention
Another thing that has a huge impact on the way the energy market and industry runs is the way it is regulated.
Ofgem
Ofgem regulates UK energy businesses that operate gas and electricity networks. They come up with new price controls and enforcement, they act in the interest of the consumers. Ofgem reviews gas and electricity market activity, including the generation and transportation of these commodities.
Ofgem has powers in the industry, but they need government approval to enforce certain reforms.
Government initiatives and bills
Ofgem ensures the correct implementation of energy policies set by the government in the energy industry. The government sometimes introduce initiatives into the sector and propose changes to the statutory framework of the sector.
For example, the government have set a goal to be net zero by 2050, therefore the government and Ofgem must work together to meet decarbonisation goals.
Price caps and guarantees
The government and Ofgem together will set price caps or schemes to ensure consumers continue to pay a fair price for energy when wholesale prices go too high.
Business energy
The energy market situation can massively affect how much businesses pay for energy. Getting the right business energy deal can also have a massive impact on a company and their budget. High energy prices have left many small and large businesses struggling over the past year.
Business energy tariffs
The price you pay for your business energy tariff massively depends on market activities. If wholesale prices are really expensive then your energy contract is also going to be the same if you sign during a time of high prices.
Business energy procurement
As business energy can be so expensive a company needs to look into energy procurement.
Energy procurement means finding and sourcing the best and cheapest energy from a supplier or local distribution company. A lot of the time companies have other people to procure energy for them such as an energy broker or consultant.
If you are interested in energy procurement services for your business, why not get in touch with a member of our team today to see how we can help you?
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